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Lane, JD, CFP, MBA
Lane, JD, CFP, MBA, JD, CFP, MBA, CRPS
Category: Finance
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Experience:  Providing Financial, Tax & Business advice since 1986
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I own a dance studio and have for 6 1/2 years. I have always

Resolved Question:

I own a dance studio and have for 6 1/2 years. I have always paid my teachers as independent contractors as they set their hours and then I schedule classes based on their schedule and expertise. I have 4 adult teachers and 4 students teachers (student teachers are those who take classes from us and teach our younger students as they have had many years of experience and are all under the age of 18).

I have recently been asked about whether these teachers should be considered employees rather than IC's, however none of them work over 7 hours per week and as I stated before they make their own schedules as to when they are available.

Some of them are also teaching at other studios as well or have part or full time jobs in addition to teaching here. I don't want to get into any trouble with the IRS but feel that they are truly IC's. I do not tell them how to conduct their classes and they provide their own materials other than the space and music player.

Can you give me some guidance?
Submitted: 1 year ago.
Category: Finance
Expert:  Lane, JD, CFP, MBA replied 1 year ago.

NPVAdvisor :

Hi I can help you with this ...

NPVAdvisor :

You've actually hit on a key point. Their time worked, and their having other activities as well, support that they are independent contractors

NPVAdvisor :

Another point is that you do not control something that, quite honestly, you COULD control (class content) even as part of the terms of your contract with them ...

NPVAdvisor :

In many instances, companies give people the choice of whether they are independent contractors or employees

NPVAdvisor :

As long as these people are paying their self employment taxes, nothing is going unpaid ... THAT's where the IRS will begin to have a problem....but again, you have it ...your not dictating content, their having other activities

NPVAdvisor :

Setting their own hours, especially .... no issue here at all

NPVAdvisor :

here is the IRS guidance:

NPVAdvisor :

Common Law Rules


Facts that provide evidence of the degree of control and independence fall into three categories:




  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?



  2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)



  3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?



Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.


The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

NPVAdvisor :

For documentation: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F

NPVAdvisor :

Sorry, let me put that on it's own line:

NPVAdvisor :

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F

NPVAdvisor :

Sorry to throw so much at you, but I wanted to give you the documentation and deal with SEVERAL good points you have for supporting the IC pay

NPVAdvisor :

Everything make sense?

NPVAdvisor :

Form my end, I keep seeing you step into and then right back out of the chat (maybe that helps?)

NPVAdvisor :

I'll give it another few minutes and then I can switch to Question and Answer mode ... maybe that will work (Wish I could see what's going on from your side) ........

NPVAdvisor :

We won't be able to talk real-time, but we can still continue a dialogue

Customer:

It does make sense but I still worry. I provide the space and equipment which makes me think that the IRS will look at that as the financial aspect. I do not reimburse them for gas or provide any benefits. I do not have a contract with any of my teachers as they may work where they want to work - even at other studios. My studio is one of the only dance studios in our area. I do tell the teachers that they cannot have inappropriate music but I do not train them (as they are very capable and respected in this area). And if they are unable to teach a class it is their responsibility to get another teacher, pay them or to cancel the class and reschedule it themselves but I do assist them if needed and will help them in any way they need help. I am the main teacher at the studio and work more than anyone but it is after all my company.

NPVAdvisor :

Ahhh there you are ... let me read your response

NPVAdvisor :

No, the financial aspect is covered too. They have to pay fro their own expenses and then deduct them from their own schedule C to get the tax benefit ... VERY clear, you decidint what you are willing to pay is actually a classic contract issue

NPVAdvisor :

The inappropriate music, again, is one of the terms of your contract

NPVAdvisor :

Under contract law you are making an offer, and they are accepting it, that is not control

NPVAdvisor :

I commend your conscientiousness in this, but this is a much more clear case than most ...

NPVAdvisor :

This is a classic case of independent contractor situation

NPVAdvisor :

You don't provide any employee benefits

NPVAdvisor :

you don't provide vacation pay

NPVAdvisor :

you don't pay them a severance if they leave

NPVAdvisor :

If you are still unclear, or worried about it, you can use form SS-* to let the IRS decide for you or help you make the decisiion ... let me see if I can find it for you

NPVAdvisor :

sorry SS-8

NPVAdvisor :

here you go:

Customer:

Thank you so much! I do feel better. I just could not bare to loose my business because I am not doing what is right according to tax laws or to cheat anyone. I make a modest living and really have not made very much money doing what I do by the time I pay for rent, electric and all the other expenses that I have, but I love what I do! I appreciate all of the information that you have given me as well as the peace of mind.

Customer:

That form would be great! I appreciate it!

NPVAdvisor :

I am a musician, myself, avocationally ... percussion, piano (which us purists know is a percussion instrument, because the hammer strikes the strings). Was all-state orchestra in high school and marched and taught Drim Corps for years

NPVAdvisor :

...lost of respect for the art of dance

NPVAdvisor :

But, again, I really think your paying as ICs here is pretty clear

Customer:

Thank you. I as well teach and play piano as well as was in the marching band all through high school and college. Majored in music and dance and living my dream to touch little peoples lives. Thanks again and I will give you an excellent rating!

NPVAdvisor :

You are very welcome ...

NPVAdvisor :

To ask for me again, just say … “For NPVAdvisor” … at the beginning of you question OR


Go here: NPVAdvisor and enter it in the question box


…pleasure working with you!

NPVAdvisor :

My daughter is taking jazz dance right now ... and I can tell you, it has most definantly enhanced her AND OUR lives

NPVAdvisor :

And finally feel free to boookmark the page here, that might make it easier to get back to me, if you need further help

NPVAdvisor :

Thanks,

NPVAdvisor :

Lane

Lane, JD, CFP, MBA, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 4504
Experience: Providing Financial, Tax & Business advice since 1986
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Lane, JD, CFP, MBA
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JD, MBA, CFP, CRPS
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Providing Financial, Tax & Business advice since 1986